According to Reuters, on Saturday, G20, the international forum for the governments and central bank governors from 19 countries and the European Union, agreed to compile common tax rules for global tech giants. This idea is proposed to close loopholes used by tech companies such as Facebook to reduce corporate tax liabilities.
Facebook, Google, Amazon, and other large technology firms faced criticism for cutting their tax bills by booking profits in low-tax countries regardless of the location of the end customer. For example Amazon paid zero dollars in federal taxes for the second year in a row despite doubling its profit, a report from the Institute on Taxation and Economic Policy confirms. Such practices are seen as unfair and the new rules would mean higher tax burdens for large multinational firms.
“We welcome the recent progress on addressing the tax challenges arising from digitisation and endorse the ambitious program that consists of a two-pillar approach,” the draft communique said. “We will redouble our efforts for a consensus-based solution with a final report by 2020.”
Britain and France are most vocal about the proposals to tax big tech companies. And the two countries are at a disagreement with the United States, which has expressed concern that US Internet companies are being unfairly targeted in a broad push to update the global corporate tax code.
“The United States has significant concerns with the two corporate taxes proposed by France and the UK,” US Treasury Secretary Steven Mnuchin said on Saturday at a two-day meeting of G-20 finance ministers in the Japanese city of Fukuoka.
Mnuchin spoke at a panel on global taxation at the G-20 after the French and British finance ministers voiced sympathy with his concerns that new tax rules do not discriminate against particular firms.
While the Internet companies say they follow tax rules, they have paid little tax in Europe, typically by channelling sales via countries such as Ireland and Luxembourg, which have light-touch tax regimes.
The G-20’s debate on changes to the tax code focus on two pillars.
The first pillar is dividing up the rights to tax a company where its goods or services are sold even if it does not have a physical presence in that country.
If companies are still able to find a way to book profits in low tax or offshore havens, countries could then apply a global minimum tax rate to be agreed under the second pillar.
The path to a final agreement is under difficult negotiation because of disagreement on a common definition and how tax distribution will happen among different countries.
“There are differences between the United States and the United Kingdom over pillar one. As for pillar two, there are also differences in views within the Group of 7,” said a senior Japanese finance ministry official present at the G-20.
According to an official, the G7 is unlikely to issue any communique at a meeting of the world’s leading economic powers next month. Still, several finance ministers at the G-20 said they needed to act quickly to correct unfair corporate tax codes or risk being punished by voters.
“We cannot explain to a population that they should pay their taxes when certain companies do not because they shift their profits to low-tax jurisdictions,” French Finance Minister Bruno Le Maire said during the panel discussion.
The US government has voiced concern in the past that the European campaign for a “digital tax” unfairly targets US tech giants.
After listening to presentations by Bruno Le Maire and British finance minister Philip Hammond, Mnuchin said G-20 countries should issue “marching orders” to their respective finance ministries to negotiate the technical aspects of a deal.
There are comments from the community as such that the ministers could not agree or even acknowledge the fact that the climatic problems exist, but agreed on the need for digital tax.
They don't agree in how to tackle or even if the climatic hell exists buuuut they all agree in the need of a digital taxhttps://t.co/s5hY1AS9iL
— Mario de Frutos (@Ethervoid) June 10, 2019
Others have agreed to this discussion and commented that the companies should pay their fair share like everyone else.
Finally! They sould pay their fair share like everyone else.https://t.co/45rK1Ysa84
— Andras Heczey (@HeczeyAndras) June 9, 2019
Will we finally see some action on globalisation/tax?https://t.co/SmeIXAXIkw
— Ian Russell (@ijrussell) June 10, 2019